Tyler Nichols: “I am done with the freemium model”
Tyler Nichols writes: “I am done with the freemium model“.
Tyler divided all the users of his service into two groups: free and paid.
He measured the behaviors of each group.
He found that the free group was detrimental to his business because:
- They emailed more questions on average than paid people.
- They hit the spam button when he emailed them with a follow-up, paid people didn’t.
- Free customers were not worth the maintenance costs they caused.
Hacker News and other communities replied (paraphrased):
- Free people were not as engaged, and therefore more wreckless.
- It was a santa letter generator, which has low repeat value after the season.
- The plural of anecdote isn’t evidence, you’ve added little value to freemium business model discussion.
- Freemium apps can be monetized by way of ads.
- The conversion rate from ‘free’ to ‘paid’ is generally very low, so the decision to go free must be placed into a broader strategic-competitor context.
- Maintenance on free customers can be managed by way of automated autorespond emails pointing people to the FAQ, at the opportunity cost of conversion to a paid fee.
2 thoughts on “Tyler Nichols: “I am done with the freemium model””
“Freemium apps can be monetized by way of ads”
Sure, but Freemium customers are crappy advertising targets. The fact people buying the ads usually don’t seem to care about measuring the value of the advertising allows ad monetization for some time period, but it’s a lousy long-term business model.
“Barrier to entry” effects on customer value have been well documented on the practical side of marketing (not sure about academia) for quite some time.
The more you beg people to buy, including giving away your product free, the lower the value of the customer generated. Then the question becomes, do you have this fact built into your marketing plan or business model, how will you:
1. Determine which customers have low future value?
2. Act on this info to increase the value of low value customers?
Thanks for reading and commenting!
A. Agree with you on the long-run business model, but only because I know you have a different opinion of what the term ‘long-run’ means from my own. Or I don’t know, maybe we agree!
B. Your two questions strike directly at the heart of the business model. The value of free is frequently nothing, and the path to monetization of something that’s free typically means that people themselves are the product.
H1: The conversion of freemium customers to paying customers costs more (all costs included) than converting somebody from being purely unaware, for a majority of business models.
But that’s the skeptic in me.
Hope you’re well, Jim.
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